Sotheby's Conference Call: Striving to Quiet Art-Market Fears

Bill Ruprecht, president and CEO of Sotheby's, this morning used his third-quarter conference call with financial analysts to try to bolster the confidence of the company's stock investors and the broader art-market public, who were spooked by Wednesday night's shaky Impressionist/modern performance.

He revealed that the auction house had suffered a $14.6 million pre-tax loss from works at that sale whose bids fell short of the guarantees offered by Sotheby's to certain consignors. But he added that despite that hit, the Impressionist/modern auction, overall, was profitable.

The company traditionally reports a loss from continuing operations in the third quarter ending Sept. 30, when few auctions are held. But this year's loss, reported today, was a significant improvement over last year's: $20.9 million, or 33 cents per diluted share, compared to $30.4 million, or 49 cents, for the same period last year. The third-quarter results reflect this week's loss on the Impressionist/modern guarantees, because "these guarantees were outstanding as of Sept. 30."

Ruprecht also gave his version of what went wrong at the sale, and why he feels the overall state of the market in general, and Sotheby's in particular, remains promising:

"We took on minimal inventory [as a result of guarantees for unsold works], except for the van Gogh...which we are pleased to invest in," Ruprecht asserted. "It's a terrific picture, and one that we have a great deal of confidence in."

The failure of that landscape to sell caught Sotheby's by surprise, he said, because "three people had traveled to New York to buy that picture" (or maybe not). Flopping early in the sale, it "colored the mood of that evening" and "rattled the participants." Placing some of the blame on the economic climate, he declared, "I don't think the financial markets that day [Wednesday] helped us one little bit. Some of our estimates were ambitious, informed by the great success we had earlier in the year."

He also stated that the company's "guarantee book," as a whole, is "expected to be profitable" this year, as it has been for the past 17 years. By the end of next week's contemporary sales, he said, "we will have cleared the guarantee portfolio," and will evaluate any future guarantees in light of current conditions.

As for the overall prognosis, he pointed to the company's sale of Chinese art in London yesterday as evidence that there has not been "a transforming shift in the whole world of markets that we operate in." But while fetching some breakout prices, that sale was only 54.8% sold by lot, 82.2% sold by value. He also observed that the "wealth at the top of the economic pyramid [where the big buyers come from] is not anything that we see abating any time soon." That might come as news to those in the financial industry who have been hard hit by the ripple effect of the global credit crisis.

Getting back to the balance sheet: Operating revenues for the third quarter were $85.1 million, up 48% over the same period last year. For the first nine months of 2007, they were a record $572 million, up 42%. For Sotheby's press release on its third-quarter and nine-month results, go here.

Whether Ruprecht's remarks have succeeded as damage control remains to be seen: Sotheby's stock opened down today, and has continued to head south, at 33.59, down 2.25 from yesterday's close, as of 11:15 a.m.

As Ruprecht observed, we'll be "a lot smarter" after the big contemporary sales next week.